Homework Answers
Compute the value of an 8% coupon, 30 year maturity bond with par value of $1000 the market yield is 8%
Answer : $1000
When coupon rate and required rate of bond is same the present value (Current price) is same as Par value.
Calculation :
| Bond price = Coupon * (1-((1+YTM)^(-Number of periods))/YTM)+(Face value/((1+YTM)^Number of periods) |
| Bond price = 80*((1-((1+8.00%)^(-30)))/8.00%)+(1000/((1+8.00%)^30)) |
| Bond price = 1000 |
When graphing a bonds price yield relationship (price on Y-axis, yield on X-axis, the convex, non-constant slope illustrates the inverse relationship between prices and yields.
Answer : True
When price goes up yield decreases and when price goes down yield will increase
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